CFDs

Jacket text for CFDs

CFDs, or contracts for difference, provide the investor with unparalleled trading opportunities in today's volatile markets.

CFDs are derivative products that allow you to trade on the price movements of securities and indices without ever owning the underlying asset. They offer a leveraged, flexible, cost-effective alternative to traditional trading methods. You can go long or short and hedge open positions in other tradable instruments, thereby enabling you to trade whatever the market conditions.

This book provides an essential guide to these exciting products. Structured in five parts it takes you through everything you need to know, from basic principles, mechanics and strategies, through to understanding the psychology behind your trading, including:

- What a CFD is, how it is priced, and the range of different CFDs and markets available to trade.

- The principles of CFDs and the mechanics of opening, funding and maintaining a CFD trading account, and the different types of account that are available.

- The logistics of trading CFDs including details of tradable markets, the range of underlying instruments and popular trading strategies.

- The benefits and risks of trading CFDs including leverage, shorting, hedging and tax.

- A comparison between CFDs and other trading instruments such as spread betting, covered warrants, options and futures.

- Controlling risk through the use of stop loss limits, trailing stops, guaranteed stops and limited liability orders.

CFDs are an essential part of the smart investor's toolbox, and this book gives you everything you need to make the most of them.

Chapter headings for CFDs

Preface

Introduction
Brief overview of the history of CFDs, and the size of the market today
What is a CFD?
What range of CFDs are available?
Describe how financial markets are developing and the opportunities open to a range of investors, retail and professional, with regard to CFD trading
How has the business of investing and trading changed in the last few years to enable CFD customers to access electronic markets directly?
What are the opportunities and challenges now presenting themselves to various market operators with regard to trading CFDs?

The Principles of CFDs
Why have CFDs become a very popular trading instrument?
Leverage, shorting and hedging
How are CFDs Priced?
What is the difference between trading CFDs and shares?
What is the difference between trading CFDs and spreadbetting?
How does CFD leverage work?
The Mechanics of Trading CFDs
How does a customer gain access to various online CFD trading venues?
Direct Market Access (DMA)
Market maker quoting
Broker Intermediation
Trading Software
What to expect from broker and market maker trading software
Permitted Order Types and strategies
Limit, stop loss, MIT, OCO, If Done, Trailing stops etc
Charting and technical analysis
MACD, Stochastics, Bolinger, Relative strength, etc etc
News, company information and market data
Describe some of the different options available
Value Added Services
In-House seminars and education programs
Account Set up
Different types of trading account (Execution only, discretionary, advisory)
Margin mechanics
How does margin work?
What charges can be expected?
Rollover and overnight charges
FX charges for positions not in domestic currency
Trading Costs and Commissions: What charges can you expect?
Market Maker Spreads
Broker commissions
FX Charges for trading in non-domestic CFDs
FX Baskets
Placing an Order
How to place an order
Order tickets
Using limits and stops
Monitoring an open position
Blotters
P and L
Calculating margin and margin calls
Case study example
Trading strategies for active traders and hedgers
Speculation
Long/Short: Using Leverage
Low cost entry and exit opportunities
How to use the 'depth of market' in the electronic order book
Long Term CFD trades: when does financing make it less worthwhile?
Pairs Trading
Taking advantage of stock price variation
Sector trading
Energy versus Metals?
Hedging strategies
Reducing risk of holding shares
When to use CFDs over shares
Taxation management
The new 'bed and breakfast'
More exotic CFD strategies combined with other instruments
CFD Basket trading
Combining positions in shares, options, and futures
Understanding and improving your trading style
How well do you trade?
What trading plan are you using?
What order types are you using?
Running winners for longer and losers for less long
Stop loss orders
Limit orders
If Done, OCO and If Touched order types
How trading style and performance can be improved
Use a trading plan
Set entry levels and exit points
Volatility and fair value
Risk & Regulation
Different risks associated with trading CFDs
Credit risk
Execution risk
Market volatility
Current Regulation of CFDs
The FSA and the European Commission have key roles to play in the future of CFDs in financial markets and even slight changes to regulations regarding these instruments could have marked effects on the industry
What FSA regulations govern the use of CFDs?
How is the new European directive MiFID changing the requirements for best execution?
Conclusion
What is the future for CFDs?

Appendices
Directory of CFD Brokers

About David James Norman

David James Norman has been involved in trading and financial markets technology for over 20 years. He has traded and overseen corporate trading operations in a variety of stock and derivatives markets, provides consultancy, seminar and coursework in the field of market technology to exchanges, global trading houses and investment banks, and has taught graduate classes in market technology for three years in Chicago. He is the author of four books on trading and market technology: Trading at the Speed of Light (Paradym, 2001), Professional Electronic Trading (John Wiley & Sons, 2002) Trader DNA (Paradym, 2006) and The Virtual Trader (Paradym 2007). Formerly the Director of Market Technology at Illinois Institute of Technology, IIT he now works in London as a financial markets consultant for Office for Market Technology, Ltd.

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